The EU Directive on cross-border tax arrangements or DAC 6 as it is more commonly referred to is a system of mandatory reporting of cross-border tax arrangements affecting at least one EU member state where the arrangements fall within one of a number of "hallmarks".
These so-called hallmarks are used to characterise and identify certain characteristics within cross-border transactions which may be indicative of aggressive tax planning.
The UK and DAC 6
Previously implemented in the UK via the passing of the International Tax Enforcement (Disclosable Arrangements) Regulations, DAC 6 requires intermediaries with a connection to the UK to disclose arrangements to HMRC in relation to which they acted as "promoters" or "service providers".
However, following the conclusion of the UK/ EU Free Trade Agreement in late 2020, the UK will now no longer be applying DAC 6 in its entirety.
Instead, only arrangements which would have fallen within Category D of DAC 6 will now need to be reported in line with the OECD's mandatory disclosure rules. This change applies retrospectively therefore no disclosures will need to be made for any arrangements that fall into one of the other hallmarks set out in DAC 6.
Category D Hallmarks
Category D hallmarks are arrangements designed to undermine tax reporting under common reporting standard and transparency rules and are split into two types of arrangement summarised as follows:-
Arrangements which have the effect of undermining reporting requirements under agreements for the automatic exchange of information;
Arrangements which obscure beneficial ownership and involve the use of offshore entities and structures with no real substance.
The initial reporting deadline in this area passed on the 30th of January, 2021. This deadline applied to affected arrangements that were made available for implementation, or ready for implementation, or where the first step in the implementation took place between 1st July 2020, and 31st December 2020. Arrangements in respect of which a UK intermediary provided aid, assistance or advice (i.e. secondary intermediary) between 1 July 2020 and 31 December 2020 were required to be reported by or before this 30th January deadline. The possibility also exists where a taxpayer involved in the arrangement may be required to make a disclosure instead. In any event, an affected arrangement only needs to be reported by one person (whether or not multiple intermediaries are involved).
Arrangements, where the first step was entered into on or after 25th June 2018, are also subject to reporting obligations with related reports due to be made in respect of such arrangements by 28th February 2021.
Thereafter, arrangements that become reportable on or after 1st January 2021 must be reported within 30 days.
Whilst this note summarises the immediate UK reporting obligations in this area, it is possible that other parties based in an EU member state and involved in a reportable transaction may need to report the arrangements to their respective tax authorities in accordance with their local obligations.
Disclaimer: This summary should not be taken as a full or comprehensive analysis of DAC 6 or Hallmark D or their respective/related reporting obligations in any jurisdiction nor should it be taken/ adapted as legal/ tax advice. In all circumstances, specialist, formal advice should be taken when considering the impact and related obligations under DAC 6 (as implemented).Your blog post content here.